Debunking some common employment law myths

The world of employment law is fast moving and often complex, so it’s unsurprising that there are some commonly held beliefs amongst employers and employees that aren’t actually correct. Here, Abi Pawlett and Paul Ball reveal the truth behind five common employment law ‘myths’.

Myth: Holiday pay should be calculated on basic pay only

This is a myth. Case law has clearly established that holiday pay should be inclusive of any regular payments that an employee receives connected to their work. This includes overtime and commission but may also include working allowances, and any bonuses which are frequently paid.

A failure to calculate holiday pay correctly could lead to employees being able to make either a claim under the Working Time Regulations 1998, but also (and more commonly) an unlawful deduction from wages claim under the Employment Rights Act 1996. This claim would be for the difference between the amount of holiday pay they were paid and the amount they should have been paid for four weeks of holiday in each of the previous two holiday years (N.B. this limit does not apply in Northern Ireland, where claims can potentially be made in relation to underpayments going back to the commencement of employment (or 1998 when the Working Time Regulations were introduced)).

The Supreme Court’s recent decision in Chief Constable of the Police Service of NI and others v Agnew means that these claims could be of a higher value as employees have more scope to link back a previous series of underpayments of holiday pay even where there is a gap of more than three months between any underpayment.

It is therefore important that an employer calculates holiday pay correctly and does not just take into account an employees’ basic pay elements.

Myth: Making an underperforming employee redundant

Unless the employer is facing a genuine redundancy situation, this is a myth.

Whilst it can often be difficult for managers to discuss poor performance issues with an employee, particularly when matters have progressed to the point of needing to deal with the issues via a formal documented process, it is important that the reasons for any underperformance are explored and targets set for improvement.

While it is still not easy to go through a redundancy consultation process, many managers find it easier than going through a performance management process. This may be because any such decision can be related to the work situation and not necessarily to the quality of the employee’s work. However, redundancy shouldn’t be used as a pretext or perceived to be an easier way to dismiss an employee where the real reason for the termination is that they are not performing the role to the standards required. A redundancy situation exists only in certain specific circumstances. These are:

• business closure (i.e., the whole company closing)
• workplace closure (i.e., a particular office, shop or site closing)
• diminished requirements in the business for employees to carry out work of a particular kind.

Unless the situation falls squarely into one or other of the above, labelling a performance dismissal as a redundancy one can, and often will, lead to an unfair dismissal claim arising. In any such claim, if the existence of a genuine redundancy situation cannot be demonstrated and the reason for the employee’s dismissal, it can, and usually will, lead to an employment tribunal deciding the dismissal was unfair.

That’s not to say that an employee who is performing poorly cannot be selected for redundancy if a genuine redundancy situation exists. Where a pool of employees are at risk of redundancy, the purpose of a selection process is to ensure the business retains the employees most able to meet the needs of the business going forward. Performance is one of the most important criteria that an employer will use to assess employees during a redundancy process. However, this simply reinforces the importance of having effective performance management and appraisal processes in place. If, as a business, managers are not dealing with performance concerns as and when they arise, and not addressing more serious concerns by way of a formal process, it could well be difficult to justify an employee receiving a low score for ‘performance’ in a redundancy assessment.

Myth: Employers can change any term of an employee’s contract on 12 weeks’ notice

This is a myth. Making changes to an employee’s contract of employment is not usually something that is possible unless the employee has given their consent to the change. Even in circumstances where the employment contract does contain some flexibility, e.g., by way of a variation clause which deals with the particular change wishing to be made (such as a right to vary shift patterns), an employer will still need to act reasonably. Part of doing this will include making sure that the employee has been given sufficient notice of the change (which may vary and is not necessarily 12 weeks) but will also mean having discussed the proposed change with the employee before giving such notice and taking account of any concerns raised. Failing to do this and simply imposing the change could mean an employer is acting in breach of the implied terms of trust and confidence, which could trigger a resignation and a claim for constructive unfair dismissal.

If the change affects more than 20 employees in any given location, and if the need to have the change in place is such that an employer might consider going through a dismissal and reengagement process, an additional point to bear in mind is collective consultation with a trade union or elected representatives for at least a 30-day period before giving notice. Failure to do this could result in a claim for a protective award of up to 13 weeks’ pay per employee.

Myth: A person engaged under a written consultancy agreement cannot be classed as an employee

This is a myth. An individual’s status (i.e., self-employed or employee or worker for employment law purposes) is not necessarily determined by the written contract. They could in fact be an employee or a worker and not self-employed, regardless of the label applied to the arrangement. The issue of employment status is both a question of fact and a question of law.

It is for an Employment Tribunal to determine an individual’s status. When considering this, it will consider all the circumstances. Three factors, now commonly referred to as ‘the irreducible minimum’ have attracted the greatest degree of case law attention and are viewed as the central factors in determining whether an employment relationship exists:

• personal service and substitution rights;
• control;
• mutuality of obligation.

In essence, the more control an employer has over an individual (i.e., requirement for personal service, limited scope for them to choose their own working hours/ days, etc.), the more likely it is that they will be deemed an employee even if they are engaged under a consultancy arrangement.

To reduce the risk of a self-employed consultant being deemed to be an employee or a worker, an employer should, among other things, consider ensuring that the consultancy agreement allows them certain freedoms that are not offered to employees, such as:

• the ability to choose how to carry out the work and to choose their own hours or days of work;
• the freedom to choose whether or not to accept any work being offered;
• the ability to set their own fee or price;
• the ability to genuinely market their services freely and to work for third parties at the same time;
• an unfettered right to provide a substitute to carry out work;
• the freedom to use their own equipment.

Consideration should also be given to including an indemnity in the consultancy agreement in relation to any claims that the individual may seek to bring based on them having worker or employee status. Whilst an indemnity of this nature may not be enforceable (to our knowledge there is no case law directly on this point), it ought to provide additional protection.

However, while putting provisions like these in a written consultancy agreement is advisable to avoid any blurriness in status; it’s far more important that the way any consultancy arrangements work in practice reflect a genuine and clear difference compared with how employees work and how they are managed. This means not only allowing the flexibility set out above but also treating a consultant differently than employees on a day-to-day basis. For instance, not giving them a work email address, not requiring their attendance as a matter of course at all meetings about a project, not inviting them to employee events, and not requiring them to comply with all employee policies such as sickness absence reporting and time-keeping. It is sensible of course to require a consultant to comply with any policies which impact on an organisation’s external reputation such as anti-bribery and corruption, or which relates to their interaction with employees such as anti-bullying and harassment.

If the reality is that an external observer wouldn’t be able to see any appreciable difference between an employee and a consultant, the chances are that the written consultancy agreement will not prevent them from seeking to bring claims based on them in fact being an employee or a worker. In most cases this is unlikely to take place while a consultancy agreement is still in place. However, if the arrangement comes to an end acrimoniously, particularly where the consultancy has been in place for more than two years and where a business has been the consultant’s main/ sole source of income for any significant part of that time, then claims of this nature being made in employment tribunals is commonplace.

Myth: Having an anti-harassment and bullying policy is enough to show that an employer is doing all they can to prevent harassment of employees

This is a myth.

Employers facing a claim by an employee that they have been subjected to harassment at work will often think that they are protected if they have an anti-bullying and harassment policy in place, particularly if it has been regularly updated, and where they have delivered training to their workforce about the policy.

However, our experience is that many employers fall far short of doing enough and struggle to persuade an Employment Tribunal that they should not be held vicariously liable for acts of harassment in the workplace. Repetition of training and refreshing the content of the policy and training, and having appropriate mechanisms for employees to report concerns, and managers given training in conducting investigations with due regard to the sensitivity of the issues raised and need to maintain confidentiality, are pretty much the bare minimum additional steps that an employer will need to have taken.

This is going to be an increasingly important point as from October this year employers will also have a statutory duty under The Worker Protection (Amendment of Equality Act 2010) Act 2023 to take reasonable steps to prevent employees being subjected to sexual harassment in the workplace.

This new statutory duty will have real teeth. In the event of a successful sexual harassment claim being brought under the Equality Act 2010, a failure to have complied with the new duty will allow Employment Tribunals to uplift compensation by up to 25%.

Whilst there is no exhaustive list of the steps that employers will need to have taken to comply with the new duty, it is likely to include:

• formulating and communicating an effective anti-harassment policy on a regular basis;
• assessing risk in an organisation and taking steps to minimise it on a regular basis and not just when an issue has arisen;
• engaging with and training staff about the organisation’s approach to sexual harassment on an ongoing basis;
• making sure people know how to report sexual harassment; and
• dealing effectively and promptly with complaints.

We are now offering a service to help employees take steps to ensure they are compliant with the new legislative changes around their duties to protect employees from sexual harassment. If you would like any further details on this please contact Paul Ball, Abi Pawlett, or another member of our expert team. 

Conclusion

Whilst this article explores some common employment law myths, the position in relation to some of these topics is not always clear cut which is why there is some confusion around them. If you require any assistance or advice on any of the above topics please get in touch.